Sharewatch Focus: Future Network
Its been anything but a happy New Year for Future Network shareholders, as the first few days of trading have seen prices sink ever lower. The year 2000 is likely to be remembered as an annus horribilis for the company suffering the fall out of an accounting error, but going back 12 months, things were looking very different.
January saw a confident start, with the acquisition of four music titles, including Metal Hammer, and three music websites from Dennis Publishing (see Future Acquires Four New Titles From Dennis). The strengthening of the music portfolio would be furthered the following month with the launch of a seven channel musician’s portal (see Newsline Brief).
However, February’s ABC figures did not bring good news for music magazine publishers, as the sector dropped 9.8% in its overall circulation figures. As far as Future’s music titles went, all but one suffered a drop (see Latest ABCs Show Few Highlights For Music Sector). The news was more mixed in the games sector, where the company hung onto its 55% market share, but saw varying performances from individual titles. Overall, Future titles increased their circulation across all sectors by 10.2% and the month witnessed the company’s shares hitting £9.26, the highest price they would reach during the year (see Sharewatch).
March saw the first set of full year results for Future since its 1999 flotation (see Future Network Reports Profits Up 85%) and reported profits up 85% year on year. Shortly afterwards Jessica Burley, ex-publisher of the FT’s business magazines, was brought onto the board ahead of the launch of Business 2.0 (see Future Network Strengthens Its Board Ahead Of Launch). Future shares ended March priced around the £8.50 mark (see Sharewatch)
What Mountain Bike magazine was launched in April, then in June the inaugural AGM was held (see Future Looks Bright A Year On From Float). The message was positive: strong internet growth, plans for more launches and computing and internet titles holding the key to growth.
August’s ABCs once again saw bad news for Future’s music titles (see Dance Titles Keep Music Sector’s Head Above Water), although it held onto its lead in the Games market (see New Launches Steady Volatile Gaming Market) and increased its circulation across all sectors by 9%.
The interim results released in September were less cause for celebration than the spring’s full year results (see Losses Mount At Future As Elisabeth Murdoch Is Appointed To Board). A heavy round of investment brought losses as high as £13.4m, but this was overshadowed by the more surprising news that media mogul Rupert Murdoch’s daughter, Elisabeth, previously flying high at Sky, was to join the board as a non-executive director. Shares responded to the news with a drop to £7.20.
One month later and the first news of the accounting anomalies at Future’s French subsidiary began to come through, as Deloitte & Touche began their investigations into the 1998 figures. The market was rattled and by the end of the day the story broke shares had dropped below the £5 mark to £4.47½ (see Sharewatch).
A new deputy chief executive, Colin Morrison was appointed at the start of November, just in time for the issue of the first profits warning, which suggested that profits for the year could be down as much as £6m on earlier estimates by analysts (see Future Shares In Freefall As True Cost Of Accounting Errors Is Revealed). Shares went through the floor, ending the day of the warning – 13 November – at £2.60, only just over half their opening price.
Confidence and the price of shares dwindled throughout December, and the year-end saw prices struggling to stay the right side of £1.50. Then came last week’s second profit warning, which brought the expected profits down by a further £6m on November’s unwelcome estimates (see Future Network Issues Second Profits Warning). Once again the effect on share prices was drastic and they ended the day at just 85p (see Sharewatch).
The accounting anomaly is doubtless to blame for a lot of Future’s woes. Not only did the company have to absorb the earnings shortfall it revealed, but it also had to cover the cost of bringing in the external auditors. However, other factors have also come into play, to the company’s detriment, this year.
The music magazine market appears to be fragmenting and evolving as we see a rise in popularity and influence of non-guitar based acts and the internet as a source of both news and downloaded music. A year which saw the demise of a cultural cornerstone such as the Melody Maker was not necessarily a good one to invest in music magazines and websites.
2000 was also a year which saw new media go from Next Big Thing to Past It, almost overnight. As the dotcom frenzy subsided, leaving defunct sites and deflated shares in its wake, the circulation of many computer and gaming magazines followed suit, and the revenue from previously technology advertisers dried up.
In addition, much of Future’s hopes were pinned on the long-awaited launch of the PlayStation 2 this autumn. Being approved publishers of the Official UK PlayStation Magazine had served the company well, although circulation dropped by 85,000 in the last ABCs, and adding the Official PlayStation 2 Magazine to its stable seemed like a coup. Unfortunately, Sony bungled the process of supplying the machines to the UK in time for Christmas, leading to ugly scenes in shops, smug smiles from those who had pre-reserved and one supermarket even resorting to illegal imports. Not being able to get hold of the product obviously blunted people’s desire for the accompanying mag, just as Future could have done with a boost.
The future for Future, which has just launched its revamped website, is now unclear. Chief executive Greg Ingham last week warned that deep cuts will be made in investment. It may be that this means the closure of under-performing or overly expensive titles, and sooner rather than later.
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